Introduction: Prices for consumer goods and services are always changing. In general, prices have increased over time;
this is known as inflation. To determine how prices are changing, BLS first asks people how much money they spend on a
variety of products and services. The Consumer Expenditure Survey is the tool that BLS economists use to determine
consumers spending habits. The results of the Consumer Expenditure Survey tell us how much of a household’s income
is spent on certain items. After learning where people shop and how much they spend on certain items, BLS data
collectors visit thousands of stores and other retail establishments on a monthly or bimonthly basis to collect prices of
goods and services in urban areas throughout the country. The results of the consumer surveys are combined with the
prices that were collected to calculate the Consumer Price Index (CPI). The CPI serves as the nation’s measure of
inflation. The BLS created an inflation calculator to help the public easily determine changes in the purchasing power of
a dollar. Purchasing power is the amount of goods and services that can be purchased with a unit of currency, in our
case U.S. dollars.
Activity: Students should use the inflation calculator to determine the
value of goods in years past and convert prices from years ago into today’s prices. For example, in 1980 a pound of
potato chips cost $1.98, but in 2012 it costs $5.45.
Question 1: According to the Census Bureau, the median value of a home was
$11,900 in 1960. In today’s dollars, how much purchasing power did $11,900
have in 1960?
Answer: In 2012, it had the purchasing power of about $91,125.00. This is an
estimate based on prices across the country. Prices are different for products
of different quality, for products purchased in different stores, and for people
who live in different places. Prices also change at different rates for different
types of items. For example, in the early 2000’s, food prices increased more
than prices for electronics.
Question 2: Your 75-year-old grandmother says to your 5-year-old brother,
“When I was your age, hot dogs cost a nickel.” How much would the nickel hot
dog cost in 2012 dollars?
Answer: Using BLS’s inflation calculator, you learn that the hot dog would cost only $0.70. That’s cheaper than the dollar
Discussion: Discuss inflation. For which items have your students noticed price changes? How have these changes
affected them and their families?